PM may ask FinMin to consider lowering excise tax on jet fuel

New Delhi: Prime Minister Manmohan Singh has agreed to ask the finance ministry to consider lowering the central excise tax on jet fuel, said two people with direct knowledge of the matter who didn’t want to be identified.

Singh, however, declined to create a dedicated committee to study the woes of the airline sector in a meeting with industry heads on Saturday.

Jet fuel constitutes as much as 40% of an airline’s total cost in India. The Federation of Indian Airlines, or FIA, says the fuel cost is largely tax-led, with a central excise tax of 8% and levies of up to 30% by various state governments.

Jet fuel costs Rs 62,310.33 a kilo litre in Delhi, up about 40% from a year earlier, according to data on the Indian Oil Corp. Ltd website.

Singh met the country’s airline owners and chief executives after the industry lobby group sought his help to tide over the financial crisis the carriers are facing, exacerbated this year by rising fuel prices and a depreciating rupee.

The meeting was attended by Jet Airways (India) Ltd chairman Naresh Goyal, IndiGo promoter Rahul Bhatia and president Aditya Ghosh, Kingfisher Airlines Ltd CEO Sanjay Aggarwal, SpiceJet CEO Neil Mills, GoAir promoter Jeh Wadia and GMR Infrastructure Ltd chief G.M. Rao. Kingfisher promoter Vijay Mallya, SpiceJet’s Kalanithi Maran and Air India officials were not present. GMR runs the Delhi and Hyderabad airports. “The request was to do something about the excise tax element on ATF, which is a central subject,” said one of the two people mentioned above.

One major carrier also pitched a request for a committee under the principal secretary to deal with the industry’s various issues, but the Prime Minister “said ‘no’ since this is a cabinet system”, this person said, adding there will be no follow-up meeting but airlines can approach the principal secretary to discuss issues. The central excise tax is under the direct control of the finance ministry. Sales tax on fuel can be changed only by the state governments, many of which have so far resisted a relaxation.

The Prime Minister “has taken cognizance of the matter. We have to see what comes out of it and how soon”, said the second official.

FIA’s request to the government in 2007 for reducing the excise tax to 4% from 8% went unheeded. FIA member airlines met on 17 November to discuss the financial crisis facing the industry, said a third official familiar with the matter, who too wanted to remain anonymous.

The day after, on 18 November, FIA sent a letter to the Prime Minister seeking time from him to discuss the “high ATF prices”, “unabated increase in airport charges particularly at privatized airports” and “uneconomic fare levels”.

“While the financial crisis faced by one airline (Kingfisher) has recently received extensive adverse publicity, some others are also not ruling out default in servicing debt obligations leading to forced closures,” FIA said in its letter, which Mint has reviewed.

FIA, however, was tight-lipped on allowing foreign airlines to invest in domestic carriers—a demand that’s gained ground in light of Kingfisher’s financial troubles—in its letter to the Prime Minister.

“The issue was raised but there no sense of the house. Since most airlines did not favour (the move), it was kept out,” the second official said. “The DIPP (department of industrial policy and promotion) has already moved a note on the matter, so what was the point of discussing it in the note to the PM?”

Mallya, who is pushing for foreign overseas airline investment in domestic airlines, did not say if the exclusion kept him from attending the meeting with the Prime Minister. “I was in Paris for a commitment with my daughter on Saturday,” Mallya said in a text message without elaborating.

A SpiceJet official, who declined to be named, said Maran could not attend the meeting as he was not well. Maran’s Dravida Munnetra Kazhagam party based in Chennai is a part of the United Progressive Alliance government at the Centre.

Airlines also asked the Prime Minister for a review of the ground-handling policy at metro airports and to grant them international flying rights.